Deck 7: Inventory and the Cost of Sales

Question 1

Items that are either manufactured or purchased for resale in the normal course of business are called

A) Supplies
B) Inventory
C) Purchases
D) Materials

Answer 1

B

Question 2

Conner Company's accounts payable balance on December 31, 2012 was $1,400,000 before considering the following transactions: Given the above information, on December 31, 2012, Conner should report an accounts payable balance of

A) $1,400,000
B) $1,150,000
C) $1,775,000
D) $1,650,000

Answer 2

D

Question 3

When products are sold, their costs are removed from inventory and reported on the income statement as an expense called

A) Operating expenses
B) Cost of goods sold
C) Cost of goods manufactured
D) Inventory expenses

Answer 3

B

Question 4

A perpetual inventory system is most often used when

A) Inventory has a small number of items with relatively high value
B) Inventory has a small number of items with relatively low value
C) Inventory has a large number of items with relatively low value
D) Inventory has a large number of items with relatively high value

Question 5

Merchandise shipped FOB shipping point on the last day of the year should probably be included in

A) The buyer's inventory balance
B) The seller's inventory balance
C) Neither the buyer's nor seller's inventory balance
D) Both the buyer's and the seller's inventory balances

Question 6

Inventory accounting is most complex in

A) Merchandising companies
B) Service companies
C) Manufacturing companies
D) Wholesale companies

Question 7

Conner Company's inventory balance on December 31, 2012 was $3,100,000 before considering the following transactions: Given the above information, on December 31, 2012, Conner should report an inventory balance of

A) $3,100,000
B) $2,850,000
C) $3,475,000
D) $3,350,000

Question 8

Which of the following is an inventory account for a retailer?

A) Raw Materials
B) Work In Process
C) Finished Goods
D) Merchandise

Question 9

If the shipping terms indicate that the seller owns the goods until delivered to the buyer, this arrangement is known as

A) Goods in transit
B) FOB shipping point
C) FOB destination
D) FOB carrier

Question 10

Inventory costs include all of the following, EXCEPT

A) Selling costs
B) Production costs
C) Purchase costs
D) Freight costs

Question 11

Which inventory account consists of partially finished products?

A) Raw Materials
B) Work In Process
C) Finished Goods
D) Merchandise

Question 12

Which of the following would NOT be included in ending inventory of the seller?

A) Goods shipped to customers,
B) Goods purchased from suppliers,
C) Goods held on consignment
D) Goods out on consignment

Question 13

Which inventory account consists of the completed products waiting for sale?

A) Raw Materials
B) Work In Process
C) Finished Goods
D) Merchandise

Question 14

If goods shipped FOB destination are in transit at the end of the year, they should be included in the inventory balance of the

A) Seller
B) Common carrier
C) Buyer
D) Bank

Question 15

A periodic inventory system is most often used when

A) Inventory has a small number of items with relatively high value
B) Inventory has a small number of items with relatively low value
C) Inventory has a large number of items with relatively low value
D) Inventory has a large number of items with relatively high value

Question 16

Cost of goods sold is equal to

A) The cost of inventory on hand at the end of a period plus net purchases minus the cost of inventory on hand at the beginning of a period
B) The cost of inventory on hand at the beginning of a period minus net purchases plus the cost of inventory on hand at the end of a period
C) The cost of inventory on hand at the beginning of a period plus net sales minus the cost of inventory on hand at the end of a period
D) The cost of inventory on hand at the beginning of a period minus the cost of inventory on hand at the end of a period plus net purchases

Question 17

The cost of finished goods inventory includes all BUT which of the following?

A) Advertising costs
B) Manufacturing overhead costs
C) Labor costs
D) Raw material costs

Question 18

Which of the following is NOT an inventory in a manufacturing company?

A) Raw materials
B) Finished goods
C) Work-in-process
D) Merchandise

Question 19

Which inventory account consists of goods in a relatively undeveloped state that will eventually be a major part of the finished product?

A) Raw Materials
B) Work In Process
C) Finished Goods
D) Merchandise

Question 20

If the shipping terms indicate that the buyer owns the goods upon shipment from the seller, this arrangement is known as

A) Goods in transit
B) FOB shipping point
C) FOB destination
D) FOB carrier

Question 21

Which of the following accounts would be debited when making closing entries?

A) Cost of Goods Sold
B) Purchases
C) Sales Discounts
D) Purchase Returns

Question 22

A firm using the periodic inventory method purchased $2,000 of inventory on terms 2/10, n/30. The journal entry to record this transaction would include a debit to

A) Purchases
B) Purchase Discounts
C) Inventory
D) Accounts Payable

Question 23

A firm that uses the perpetual inventory method purchased $1,000 of inventory on terms 2/10, n/30. The journal entry to record this transaction would include a debit to

A) Purchases
B) Purchase Discounts
C) Inventory
D) Accounts Payable

Question 24

If a company sold merchandise for a profit, the accounting equation would show a(n)

A) Net increase in assets and increase in revenues
B) Net increase in assets and decrease in liabilities
C) Net decrease in assets and increase in revenues
D) Increase in liabilities and increase in revenues

Question 25

A firm using the perpetual inventory method returned defective merchandise costing $2,000 to one of its suppliers. The entry to record this transaction will include a debit to

A) Accounts Receivable
B) Inventory
C) Purchase Returns
D) Accounts Payable

Question 26

Which of the following statements is true under the periodic inventory method?

A) Freight-In is subtracted from purchases in order to derive net purchases
B) Freight-In is added to purchases in order to derive net purchases
C) Freight-In is used only with the perpetual inventory method, not with the periodic inventory method
D) Freight-In is neither subtracted nor added to purchases in order to derive net purchases

Question 27

The perpetual method of accounting for inventory

A) Requires that a physical count of inventory be taken before the cost of goods sold can be determined with any reasonable degree of accuracy
B) Is likely to be less expensive to maintain than a periodic inventory method
C) Is not as helpful as a periodic method in providing management with timely reports about inventory quantities and costs
D) Allows management to better estimate inventory losses from pilferage than does a periodic inventory method

Question 28

A firm using the periodic inventory method returned defective merchandise costing $2,000 to one of its suppliers. The entry to record this transaction would include a debit to

A) Accounts Receivable
B) Inventory
C) Purchase Returns and Allowances
D) Accounts Payable

Question 29

When a company uses the perpetual inventory method, purchase returns are recorded by

A) Debiting Purchase Returns
B) Crediting Purchase Returns
C) Crediting Accounts Payable
D) Crediting Inventory

Question 30

Company D makes the following entry in its accounting records: This entry would be made when

A) Merchandise is sold and the periodic inventory method is used
B) Merchandise is sold and the perpetual inventory method is used
C) Merchandise is returned and the perpetual inventory method is used
D) Merchandise is returned and the periodic inventory method is used

Question 31

Which of the following accounts would be found on the income statement?

A) Inventory
B) Wages Payable
C) Freight-In
D) Cash

Question 32

A firm using the perpetual inventory method returned defective merchandise costing $2,000 to one of its suppliers. The entry to record this transaction will include a credit to

A) Accounts Receivable
B) Inventory
C) Purchase Returns
D) Accounts Payable

Question 33

Williston Cattle Company uses a perpetual inventory system. Williston purchased sheep from Little H Ranch at a cost of $39,000, payable at time of delivery. The entry to record the delivery would be

A) Purchases 39,000 Accounts Payable 39,000
B) Inventory 39,000 Accounts Payable 39,000
C) Purchases 39,000 Cash 39,000
D) Inventory 39,000 Cash 39,000

Question 34

ACE Manufacturing pays a freight bill of $54 to United Trucking Company for merchandise purchased from Jackson Sales, terms FOB shipping point. When recording the payment with the periodic inventory method, ACE would debit the $54 cost of the freight to

A) Purchases
B) Freight-In
C) Prepaid Freight
D) Freight-Out

Question 35

The entry (or entries) required to record a sales return by a customer when using the perpetual inventory method would consist of

A) A debit to Sales Revenue and a credit to Accounts Receivable
B) A debit to Sales Returns and a credit to Accounts Receivable
C) Debits to Sales Returns and Inventory and credits to Accounts Receivable and Cost of Goods Sold
D) Debits to Sales Returns and Cost of Goods Sold and credits to Accounts Receivable and Inventory

Question 36

Under the periodic inventory method, if merchandise is sold for cash on December 31 and is recorded as a sale but is NOT shipped (and thus is included in the ending inventory count), the financial statements will

A) Overstate assets
B) Understate net income
C) Understate liabilities
D) Understate assets

Question 37

When the periodic inventory method is used, the entry to record a return of defective merchandise to a supplier would include a

A) Credit to Accounts Payable
B) Credit to Inventory
C) Credit to Purchase Returns
D) Credit to Cash

Question 38

ACE Manufacturing pays a freight bill of $54 to United Trucking Company for merchandise purchased from Jackson Sales, terms FOB shipping point. When recording the payment with the perpetual inventory method, ACE would debit the $54 cost of the freight to

A) Inventory
B) Freight-In
C) Prepaid Freight
D) Freight-Out

Question 39

ABC Company purchased inventory on account with credit terms of 2/10, n/30. It paid the amount owed within 10 days and recorded the following entry: Given this entry, and assuming that ABC company uses a periodic inventory system, what would be the nature of Account C?

A) Accounts Payable
B) Inventory
C) Purchase Discounts
D) Cash

Question 40

Which of the following accounts would NOT normally have a debit balance?

A) Inventory
B) Cost of Goods Sold
C) Purchase Discounts
D) Freight-In

Question 41

An entry is made to close Purchases and Purchase Discounts as: Account A $\quad$ 35,000
Account B $\quad$ 1,600
Account C $\quad$$\quad$ 36,600 Based on this entry, total (gross) purchases for the year were

A) $35,000
B) $1,600
C) $36,600
D) Undeterminable, given the preceding information

Question 42

If a firm's beginning inventory is $70,000, purchases are $320,000, and the cost of goods sold is $300,000, what is its ending inventory?

A) $330,000
B) $260,000
C) $90,000
D) $30,000

Question 43

Exhibit 7-1 Garfunkle Company had the following four transactions during January 2012:
Refer to Exhibit 7-1.Given the information above,with the perpetual inventory method,the entry to record the January 15 transaction would include a

A)Debit to Purchases of $150
B)Credit to Purchases of $150
C)Credit to Inventory of $150
D)Credit to Purchase Returns of $150

Question 44

Which of the following will result if the current year's ending inventory amount is understated in the cost of goods sold calculation?

A) Cost of goods sold will be overstated
B) Total assets will be overstated
C) Net income will be overstated
D) Cost of goods sold and net income will be overstated

Question 45

Under which inventory system would a company NOT be able to specifically determine the amount of inventory lost or stolen?

A) Periodic inventory system
B) Perpetual inventory system
C) Both periodic and perpetual inventory systems
D) Neither periodic nor perpetual inventory systems

Question 46

Exhibit 7-2 Lindsey Corporation had the following account balances:
Refer to Exhibit 7-2.Given the information above,and assuming that Lindsey's total operating expenses (exclusive of cost of goods sold)are $40,000,pretax income is

A)$46,000
B)$110,000
C)$114,000
D)$74,000

Question 47

If expenses are overstated on the income statement, net income

A) Will be unaffected
B) Will be overstated
C) Will be understated
D) Cannot be determined from the information given

Question 48

If cost of goods sold is $12,000 and the ending inventory balance is $6,000, the

A) Beginning inventory is $18,000
B) Net income is $6,000
C) Cost of goods available for sale is $18,000
D) Purchases are $6,000

Question 49

A physical count would be necessary at the end of the accounting period under which inventory system?

A) Periodic inventory system
B) Perpetual inventory system
C) Both periodic and perpetual inventory systems
D) Neither periodic nor perpetual inventory systems

Question 50

If a firm's beginning inventory is $70,000, goods purchased during the period cost $260,000, and the cost of goods sold is $300,000, what is the ending inventory?

A) $30,000
B) $50,000
C) $40,000
D) $90,000

Question 51

If the ending inventory is overstated, net income for the same period will be

A) Unaffected
B) Overstated
C) Understated
D) Cannot be determined from the information given

Question 52

When the current year's ending inventory amount is overstated, the

A) Current year's cost of goods sold is overstated
B) Current year's total assets are understated
C) Current year's net income is overstated
D) Next year's income is overstated

Question 53

For external reporting purposes, inventory shrinkage is usually combined with which account?

A) Merchandise inventory
B) Gross profit
C) Cost of goods sold
D) Operating expenses

Question 54

Exhibit 7-2 Lindsey Corporation had the following account balances:
Refer to Exhibit 7-2.Given the information above,gross margin is

A)$86,000
B)$94,000
C)$106,000
D)$114,000

Question 55

With the perpetual inventory method, which of the following entries would be made when inventory costing $3,600 is sold for $5,000?

A)

B)
$\begin{array}{ll}\text { Cost of Goods Sold } & 3,600 \\\text { Inventory } & 3,600\end{array}$
C)
$\begin{array} { l } \text { Purchases } \quad 5,000 \\\text { Accounts Receivable } \quad 5,000 \\\end{array}$
D)
$\begin{array}{lc}\text { Inventory } & 3,600 \\\text { Cost of Goods Sold } & 5,000 \\\text { Accounts Payable } & 3,600 \\\text { Purchases } & 5,000\end{array}$

Question 56

If the ending inventory balance is understated, net income of the same period will be

A) Overstated
B) Understated
C) Unaffected
D) Cannot be determined from the information given

Question 57

Exhibit 7-1 Garfunkle Company had the following four transactions during January 2012:
Refer to Exhibit 7-1.Given the information above,with the perpetual inventory method,the entry to record the January 5 transaction would include

A)A debit to Cost of Goods Sold of $1,500
B)A debit to Accounts Receivable of $2,500
C)A credit to Inventory of $1,500
D)All of these

Question 58

The inventory shrinkage account is

A) Used only with the perpetual inventory method
B) A permanent (real) account
C) A balance sheet account
D) Used only with the periodic inventory method

Question 59

Chyna Corporation has the following income statement for the year ended December 31, 2012: Given this information, if ending inventory was $10,000 instead of $12,000, net income would be

A) $18,000
B) $22,000
C) $20,000
D) None of these

Question 60

An overstatement of ending inventory in period 1 would result in income of period 2 being

A) Overstated
B) Understated
C) Correctly stated
D) Cannot be determined from the information given

Question 61

Exhibit 7-4 Purchases and sales during a recent period for Casora Inc. were as follows:
Refer to Exhibit 7-4. Beginning inventory was 100 units at $1 each. Given this information, what is the average cost per unit available for sale during the year if the periodic inventory method is used (rounded to the nearest cent)?

A) $2.61
B) $3.10
C) $3.53
D) $3.31

Question 62

Which of the following would be true if inventory costs were increasing?

A) LIFO would result in lower net income and lower ending inventory amounts than would FIFO
B) FIFO would result in lower net income and higher ending inventory amounts than would LIFO
C) LIFO would result in a lower net income amount but a higher ending inventory amount than would FIFO
D) None of these would be true

Question 63

Exhibit 7-3 The following information is provided:
Refer to Exhibit 7-3. Given the information above, determine the amount of ending inventory.

A) $73,600
B) $105,600
C) $70,400
D) $102,400

Question 64

Exhibit 7-4 Purchases and sales during a recent period for Casora Inc. were as follows:
Refer to Exhibit 7-4. Beginning inventory was 100 units at $2 each. Given this information, what is the ending inventory if the periodic LIFO costing alternative is used?

A) $400
B) $500
C) $1,250
D) $3,100

Question 65

If ending inventory on December 31, 2011, is overstated by $60,000, what is the effect on net income for 2012?

A) Net income is overstated by $60,000
B) Net income is understated by $60,000
C) Net income is overstated by $120,000
D) The answer cannot be determined from the information given

Question 66

During a period of continuing inflation, which inventory cost flow alternative usually results in the highest reported net income?

A) FIFO
B) LIFO
C) Average cost
D) All of these result in the same reported net income

Question 67

Exhibit 7-3 The following information is provided:
Refer to Exhibit 7-3. Given the information above, determine the amount of freight-in.

A) $9,600
B) $12,800
C) $6,400
D) $3,200

Question 68

The net sales figure of XYZ Company in 2012 was $300,000. If the cost of goods available for sale was $280,000 and gross margin was 35 percent of net sales, ending inventory must have been

A) $70,000
B) $85,000
C) $195,000
D) $105,000

Question 69

Which inventory cost flow assumption matches current costs against current revenues?

A) Average cost
B) FIFO
C) Specific identification
D) LIFO

Question 70

During an inflationary period, which inventory costing alternative usually results in a firm paying the lowest income taxes?

A) FIFO
B) LIFO
C) Average cost
D) Specific identification

Question 71

Which of the following will occur when inventory costs are decreasing?

A) LIFO will result in lower net income and lower ending inventory than will FIFO
B) FIFO will result in lower net income and lower ending inventory than will LIFO
C) LIFO will result in a lower net income but a higher ending inventory than will FIFO
D) FIFO will result in a lower net income but a higher ending inventory than will LIFO

Question 72

Exhibit 7-5 Warren Clothing Store sells jeans. During January, its inventory records of one brand of designer jeans were as follows:
Refer to Exhibit 7-5. Using the information above, periodic FIFO cost of goods sold is

A) $330
B) $300
C) $430
D) $350

Question 73

Montgomery Corporation has the following account balances: Given this information, total cost of goods available for sale is

A) $60,000
B) $57,000
C) $58,000
D) $62,000

Question 74

Purchases and sales during a recent period for Bottineau Inc. were Beginning inventory was 200 units at $2 each. Given this information, what is the ending inventory if the periodic FIFO costing alternative is used?

A) $1,600
B) $2,000
C) $5,000
D) $12,400

Question 75

Agassi Company is a wholesale electronics distributor. On December 31, 2012, it prepared the following partial income statement: Given this information, if the ending inventory balance was $210,000, what would be its gross margin?

A) $290,000
B) $300,000
C) $310,000
D) $210,000

Question 76

Following are the account balances from Samuel Company's income statement: Given this information, the cost of merchandise available for sale during 2012 is

A) $65,000
B) $59,000
C) $69,000
D) $61,000

Question 77

Which inventory cost flow assumption is most often used by businesses that sell a limited number of high-priced items?

A) Average cost
B) FIFO
C) Specific identification
D) LIFO

Question 78

The following information is available for Harvey Corporation for the month of June: Given this information, the average (periodic) ending inventory balance is approximately

A) $9,056
B) $4,205
C) $3,968
D) $4,320

Question 79

Following are the account balances from Connery Company's income statement: Given this information, the cost of goods sold during 2012 is

A) $51,000
B) $46,000
C) $56,000
D) $66,000

Question 80

Which inventory cost flow assumption best reflects the current value of inventory on the balance sheet?

A) Average cost
B) FIFO
C) Specific identification
D) LIFO